Thursday, June 09, 2005

Futures Movers: Oil futures close sharply higher on storm fears - Oil and Gas - Energy - Commodities

Futures Movers: Oil futures close sharply higher on storm fears - Oil and Gas - Energy - Commodities


Oil futures went above $54 today and the stock market went up.

Bond rates traded up today and the stock market went up.

Greenspan testified and the stock market went up.

In a Bear Market, a little good news or a little bad news sends the market down. In a BULL MARKET a little good news or a little bad news sends the market up. "Talking Heads" are not going to announce a BULL market until stock indexes are up 20% or so above the December 2004 highs. Don't miss the run--buy now.


I have been ambivalent in regard to where short-rates might go; I have flopped around like a fish out of water on this call because I can see both sides of the issue. With stocks at a deep earnings discount to bonds and real estate, I have been bullish on stocks. I like for all pieces of the puzzle to fit but I also try to practice the KISS principle. Too many investors over analyse and develop led feet. Those going after top performance must be willing to sort out the essentials and ignore the fluff.

I have not been overly concerned about where short rates might go. However, anyone who trys to achieve alpha (over-performance) must keep a wary eye on short rates.

Based on recent information, I have reached the conclusion that the need for a pause at current or close to current rates is not real. Nominal economic growth is quite strong and inflation though moderate needs to be kept under control. It is not a perfect world. One cannot hope for the FOMC to stop rates at 3.25% and ring a BULL MARKET BELL!


As far as I know, I am the Lone Ranger in regard to my primary theory behind Greenspan's conundrum. I like others have danced around the idea that extremely high Chinese productivity growth, internet technology, and free trade are responsible for illogically low bond yields. For a while, the theory went around that insurance companies and pension funds were the culprits. However, while helping a few young fellows with substantial 401-K accounts, I realized how many billions of dollars are being pumped into relatively restrictive retirement accounts.

In these accounts I often find very high allocations to bonds. Most of the participants do not even know how many bonds they have. In addition to bond funds, they often have balanced funds and "lifestyle" accounts. The balanced accounts are often pretty heavy into bonds and the lifestyle accounts are required to move more into bonds as the participants age.

In my view, stocks are like the engine in a car and bonds are like the shock absorbers. The engine is necessary to make the car go and the shock absorbers keep the ride from being to bumpy. Many 401-K accounts currently have a 50 horse power engine and 20 sets of shock absorbers. The owners are starting to wonder why the car is so slow.

As correctly allocated accounts start pulling away, billions of dollars will seek higher returns. The BULL MARKET will be in full stampede by the time this shift starts to occur.